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Lionsgate has released its third quarter financial results while exploring a possible sale or spinoff of the premium cable and streaming platform Starz or its studio business.
The studio swung to a third quarter net income at $16.6 million, against a year-earlier loss of $45.6 million, on overall revenue rising to $1 billion, compared to a year-earlier $885.4 million, on strong studio revenue during the three months to Dec. 31, 2022.
Lionsgate posted an adjusted earnings per-share at 26 cents, compared to a year-earlier per-share loss of 12 cents, which in the latest financial quarter beat an analyst estimate by 38 cents. The studio reported record trailing 12-month library revenue of $845 million in the quarter from a mix of film and TV content, including the licensing of Schitt’s Creek and Shotgun Wedding.
“We reported a strong financial quarter with record trailing 12-month library revenues affirming the value of our intellectual properties. We enter our fourth quarter with encouraging signs across all of our businesses: a rebounding domestic box office just as we bring our biggest slate in years to theaters; renewals of six key Lionsgate Television series during or immediately after the close of the quarter; and improved Starz economics due to its international reorganization,” Lionsgate CEO Jon Feltheimer said in a statement.
Lionsgate is exploring its options for Starz, including a possible separation of the pay TV and streaming business and its studio operations. The goal appears to be creating two standalone companies so investors can value the Starz and studio assets separately, a strategy reiterated by Feltheimer during prepared remarks made to analysts during an after-market conference call.
He said “our plan to separate Lionsgate and Starz by the end of September remains on track.” Feltheimer added that separation will allow Lionsgate’s core businesses “to pursue strategic and financial paths that make sense for each of them and unlock greater value by operating as pure play entities.”
But it appears more work is required before any separation is fully completed and unveiled. “We are exploring a number of financial strategies to leave both companies with strong balance sheets at the time of separation. With our film and television studio businesses operating at full throttle and Starz establishing itself in the streaming ecosystem as a complementary bundling partner of choice, operating on a standalone basis will give both companies a chance to shine,” Feltheimer said.
The studio said it will unveil next week its first domestic bundling agreement for Starz. “The partner is obviously another complementary streaming partner that we’re excited to go to market with. And as with any bundle, we will have a joint price point that’s cheaper than the individual parts to give consumers value,” Starz president and CEO Jeffrey Hirsch told analysts.
As part of a potential separation, Lionsgate CFO Jimmy Barge told analysts that separate financial statements for the Starz and studio businesses were already being prepared, and regulatory documents for a reverse spin off of the studio business would be filed by March and would be completed, as planned, by September 2023.
Lionsgate’s latest financial results included an $80.8 million content write-down as it restructures its Lionsgate+ business, or formerly the STARZPLAY International division, after removing certain TV series from its service. That’s in line and smaller in size than content writedowns taken by rival media players across the industry.
Barge also told analysts that cost-cutting includes Lionsgate having reduced its overall workforce by 150 employees, or around 10 percent, through a recent restructuring and not filling open positions.
Also during the latest quarter, the media networks division, which is mainly Starz, saw segment revenue of $380.3 million, compared to a year-earlier $388.9 million. Starz during the latest quarter added 400,000 international subscribers, to offset a loss of 1.1 million domestic subscribers in the sequential quarter to 19.9 million in all.
Starz has returned to subscriber growth during the current fourth quarter due to improved content performance and the launch of BMF. And Starz subscribers are up 2.8 percent year-over-year, when factoring seven international markets that the premium platform is exiting.
Lionsgate will leave Lionsgate+ markets in France, Germany, Italy, Spain, Benelux, the Nordic regions and in Japan. The studio is remaining with Starz internationally in the UK, Latin America and Canada.
The studio business, made up of the film and TV production divisions, saw revenue rise 25 percent to $894.2 million. And the motion picture segment revenue rose 5 percent to $288.8 million.
On Thursday, Lionsgate said its TV division will produce a revival of Spartacus at Starz, with writer and creator Stephen S. DeKnight returning as showrunner and executive producer. Also during the call, Lionsgate said it was looking at strategic alternatives for its majority stake in 3 Arts Entertainment, which it acquired in 2018.
Under the terms of the original deal, after five years, or in May 2023, 3 Arts has a put for Lionsgate to buy the talent agency’s remaining stake. “We’re just starting discussions, which essentially are both a combination of strategic discussions and a negotiation at the same time,” Feltheimer said, without giving details.
While some potential suitors appear to see Starz as a streaming platform, others are looking at Lionsgate and its programming library as a possible indie studio acquisition after the planned separation later this year as digital titans like Apple and Amazon muscle into Hollywood.
Lionsgate is touting its 17,000-strong programming library as difficult to replicate and an appealing target for a bigger media player looking to bolt on an indie studio. And despite volatile financial markets, the entertainment industry has seen a recent spate of mergers and acquisitions as major players dive into the streaming space and indie studios get bought up for scale and content.
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